At the Bloomberg Global Credit Forum in New York, a portfolio manager from DoubleLine delivered a stark assessment of the market for debt tied to artificial intelligence projects, saying the chance of that market becoming a bubble is effectively certain.
Speaking to a gathering of investors and bankers, Robert Cohen stressed that money managers should place emphasis on companies with strong balance sheets and on debt transactions that include meaningful protections for creditors. He framed this advice as a response to what he sees as a high probability of frothy behavior in credit markets tied to AI financing.
"What’s the probability that we will be in an AI bubble? I’ll put maybe 100% on that," Cohen said.
Panelists at the forum also noted that, despite the warning, the market has not yet reached bubble conditions and that investor demand for AI-related debt instruments remains robust. Many of these financings have support from large, profitable technology firms - commonly referred to as hyperscalers - with examples cited including Alphabet Inc. (NASDAQ:GOOGL) and Meta Platforms Inc. (NASDAQ:META).
Cohen additionally observed that equity valuations could be showing greater signs of stretch. He offered a working definition of an equity bubble as a situation in which prices embed overly optimistic expectations for future growth, implying that current market pricing may be pricing in growth that proves unrealistic.
The guidance from the DoubleLine manager centers on defensive positioning in credit exposure - favoring issuers that already demonstrate balance-sheet resilience and structuring investments with protections that can mitigate downside risk if anticipated growth does not materialize.
Context limitations - The remarks reflect the manager's assessment at the forum. The panel discussion noted ongoing demand for AI debt and the common backing of such deals by major technology companies, but did not state that market-wide bubble conditions have been reached.